Wednesday, April 01, 2015

Head of teachers’ pension wants special session for $3.3B bonding plan

After falling short in its bid
for $3.3 billion in bonds to shore up its finances, the Kentucky
Teachers’ Retirement System may request a special session to reconsider
the proposal.

Citing the “magnitude” of the $14 billion in unfunded pension
liabilities that will quickly grow to $21.6 billion by July 1 without a
funding plan, KTRS Executive Secretary Gary Harbin said Thursday the KTRS
Board of Trustees has directed him to have external analysts look at
the financial situation facing the teachers’ retirement agency and
evaluate its suggestion to sell $3.3 billion in bonds.

“We’re going to be looking at asking for a special session,” he told Pure Politics.

“This is worthy of deep understanding and deep study by everyone,
and we’re prepared to do whatever and meet with whoever that it takes in
order to get this funding solved as soon as possible because we think
that the sooner this is solved the better it is for members and the
better it is for taxpayers,” Harbin added, noting KTRS has not contacted Gov. Steve Beshear’s office about a special session.

KTRS’s auditor, Mountjoy Chilton Medley, will likely take on the
task of reviewing the pension system’s $3.3 billion plan and its books,
Harbin said.

“The first step is to get the outside review,” he said. “I started
yesterday morning at eight o’clock discussing that with staff and with
outside counsel on how to get that review done and what best way to
manage that, and we’ll be taking steps over the next few days to get
that review done as quickly as possible.”

House Bill 4, legislation directing $3.3 billion in bonds for KTRS, fell by the wayside in the session’s final days as negotiators from both chambers couldn’t reach an agreement by sine die.

Senate Republicans balked at House Speaker Greg Stumbo’s bill, which
would be the largest bond sale in Kentucky’s history. Instead, the GOP wanted to study KTRS and its funding status before next year’s legislative session, offering $50 million in the meantime.

Senate President Robert Stivers called HB 4 “irreponsible” and
chided House Democrats for walking away from “an immediate good-faith
cash infusion into the teachers’ retirement fund, combined with a
framework to find the long term reforms necessary to stabilize the
system.”

“There is no crisis that requires $3.3 billion in new debt; the fund
can make payments for the next 21 years,” Stivers, R-Manchester, said
in a statement Wednesday.

But one legislative leader’s “good-faith cash infusion” is another’s
“appeasement offer, I think, to try to dodge the problem,” as House
Speaker Greg Stumbo told reporters Thursday.

Rep. Rick Rand, chairman of the House budget committee, traced the
$50 million proposition to a budget transfer from the Public Employee
Health Trust Fund, from which lawmakers plucked $63.5 million of a
roughly $110 million savings in House Bill 510 to boost reserves and
fund $10 million each for SEEK and heroin treatment options.

“If the Senate wants a study that’s fine with me,” he said in his
Capitol office. “It’s going to say that it doesn’t have enough money in
it, but if you want that printed up in a 50-page study, at the end of
the day that’s what it’s going to say: the system doesn’t have enough
money in it.”

Stumbo, D-Prestonsburg, said he would support calling a special
session to rethink his $3.3 billion proposal, which he suggested
splitting in pre- and post-study installments during conference
committee negotiations on HB 4.

“It needs to be addressed,” he said. “It needs to be addressed now.”

Part of the problem with waiting, according to Stumbo and Harbin, comes as the Federal Reserve considers raising interest rates.

An expected interest hike of at least 1 percent over the next year
and a half may cost as much as $664 million more over the life of the
30-year bonds if issued, Harbin said. He noted, however, that bonding is
still feasible with the heftier price tag.

“That in and of itself would not negate the advantages of using
bonding for the state to step in, but it does raise the cost by about 10
percent,” he said.

Harbin said he only learned of the Senate’s $50 million counteroffer
the morning lawmakers adjourned sine die Wednesday, and he took it as
an “acknowledgement on the part of the Senate that there is an issue”
that requires additional funding for KTRS.

But while he would welcome any relief, he said the $50 million would
only cover about a third of one month’s retiree payroll of some $144
million. What’s more, Harbin said the $18.1 billion KTRS expects to liquidate $3 billion in assets over the next four years to help make benefit payments.

KTRS officials have already begun drafting
the agency’s budget request, and Harbin said the pension system will
seek actuarially required contributions totaling $510 million in fiscal
year 2017 and $490 million in 2018. Under HB 4, the state would have
paid just $44 million in the first year of an eight-year phase-in window
for a long-term funding plan, he said.

Beshear, though, said he has no reason to call the General Assembly
back to Frankfort when asked Wednesday about the prospects of a special
session, which generally costs about $60,000 per day and lasts at least
five days.

“I think we have addressed everything of any immediate concern,” he
told reporters at the Capitol. “Obviously there are things that I think
need to be addressed … but I’m happy that we made progress on each of
those (bills on public-private partnerships, local-option sales taxes
and a statewide smoking ban).”

The General Assembly’s inaction comes at an inopportune time, at least from a bookkeeping standpoint.

Without a dedicated plan to pay off its unfunded liabilities, KTRS’s
reported unfunded obligations of $14 billion will grow to $21.6 billion
on paper thanks to new government accounting standards, which Harbin
said has bumped the pension’s expected investment return from 7.5
percent to 5.23 percent.

KTRS’s funded ratio will drop from 53.6
percent to 45.6 percent once the higher pension debt hits Kentucky’s
financial statements in July, according to Harbin and KTRS valuations.

“We’ve been working with the folks in finance to get the numbers to
them for this new liability on the books for over two years now
actually,” Harbin said.

2 comments:

Anonymous
said...

Why are we going to pay these jokers to come back and again not do what they should have done in the first place?

If a student needs assistance from a teacher who is responsible for serving him or her, it is the teacher's professional obligation to follow through with that responsibility - not ignore the kid as though they will some how be successful without intervention or tell the student to wait a couple of years and we will see how he or she is doing then.

You look at the real problems our state has and you look at what little these jokers accomplish and it is no wonder we are in the mess we are in now.

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